Claire Simpson, Global Claims Director for Financial Solutions at Willis Towers Watson, provides an overview of the future direction of Africa’s trade credit and political risk insurance market.


Africa continues to dominate the claims headlines at Willis Towers Watson Financial Solutions as it has done for the last five years; indeed around half of our credit and political risk losses have stemmed from sub-Saharan Africa. Sovereign default, credit issues at national oil companies and problems accessing hard currency have all played out and it is clear that grinding out solutions for these debt problems will take a long time and be full of complexity, leaving traders, lenders and corporates with a heavy burden in the absence of risk mitigation.


Given that claims can sometimes be equated to looking through a rear-view mirror what lies on the road ahead?

Economic risks will continue to be elevated, of course exacerbated by the pandemic environment and highly increased debt levels. Indeed the IMF reported in June that public debt in sub-Saharan Africa jumped more than 6% to 58% of GDP in 2020, the highest level in almost two decades.1 The currency risk in much of Africa is also at the highest level, which will of course present challenges over the short to medium-term, trapping cash as companies find it difficult to repatriate earnings or get paid out as expected.

Political violence, also on the rise, has seen South Africa experience its most extensive strikes, rioting and civil commotion since the apartheid era, with insurers fearing damage could stretch to US$1bn.2 Whilst the immediate cause was the arrest of former President Jacob Zuma, the perennial problem of poverty, magnified by the pandemic, could see ongoing issues.

But it is not all doom and gloom. Africa remains heavily dependent on commodities. Commodities account for over 80% of exports in 35 of the countries and indeed 30 countries have a dependency on a single commodity that makes up over 40% of their exports.3 This left Africa particularly exposed to the global collapse in demand. But as the global economy begins to recover, commodity prices are up 20%, indeed crude oil by around 50%, which will provide some welcome relief.4

The African economy is set to grow in 2021, though the debt:GDP burden is also set to increase considerably as governments wrestle with how best to tackle the pandemic response. This increased pressure will leave Africa vulnerable to further shocks, heightened sovereign default risk and, in the worst scenario, the threat of disorderly debt default.

The fact that Africa still lags considerably behind the rest of the world in terms of vaccine rollout is also problematic, with less than 2% of the population having received a double vaccine and supply shortages, even under the Covax programme, continuing to frustrate progress.5 This leaves the continent’s recovery a fragile one with vaccine inequity also disadvantaging many Africans.

That said, client appetite for African risk continues apace. Africa makes up a significant portion of the WTW Financial Solutions credit and political risk portfolio and enquiries continue to pour in from export credit agencies (ECAs), lenders, companies and traders, with risk mitigation enabling them to grow their business, expand African trade and provide the infrastructure so vital to the sustainable and much-needed long-term development. It was announced at the G7 summit that US$80bn will be invested into Africa’s private sector over the next five years by development finance institutions (DFIs) and multilateral partners.6 Small wonder then that demand is high but how are insurers responding?

The market is definitely open but finding capacity will prove challenging for a number of reasons

Firstly, the increased loss activity and elevated debt levels across the continent are subject to increased scrutiny by insurers. Inevitably experienced insureds with a proven track record of insurer partnership will be prioritised, as will projects that generate foreign exchange. Contractor experience and reputation will also play a part. Many insurers suggest that projects with DFI, multilateral or ECA involvement where the “halo” effect might bring advantages will also be prioritised. An additional layer of complexity will come given the dependence of many African countries on oil and gas, an agenda which now sits uncomfortably with insurers’ tightening ESG underwriting requirements.

Appetite on the political violence side remains strong and capacity is available as insurance has only really been purchased by lenders rather than corporates as part of a comprehensive risk management strategy. That said, spikes of risk in some areas due to the presence of terrorist groups such as Boko Haram and Al Shabab do temper appetite.

With concerns on how the African pandemic recovery will play out, lenders, treasurers and risk managers will need to maintain vigilance and carefully assess their risk mitigation strategies to make sure personnel are kept safe and capital preserved. The international community will also need to play its part in helping Africa flourish and debt sustainability will once again need to be at the heart of those conversations. However, that will only work if governments make bold reforms and maximise the opportunities for free trade across the African Continental Free Trade Area.

In the short term the priority will be to capitalise on the commodity price rally to make sure the profits are re-invested well and bolster the recovery. Alongside that, insurance, so important in Africa’s recent development, will continue to perform, pay claims and aid the further development of key infrastructure. Importantly clients will need to evidence the strengths their transaction has over others to access the most insurance capacity.





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